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The Disruption Dilemma

The Disruption Dilemma

by | Sep 7, 2019 | Book Club

It’s been 22 years since the publication of The Innovator’s Dilemma, the book that catapulted Clayton Christensen to guru status, shocked and scared executives at large companies, and brought innovation into the mainstream.

In the decades since, “innovation,” “disruption,” and a host of related terms have become meaningless buzzwords, a massive industry of consultants and advisors (yes, including Mile Zero) has sprung up, and an untold number of books and articles have been written about how to innovate.

Yet nothing has changed.

Large organizations still struggle to launch anything other than incremental innovations, the failure rate of start-ups remains astoundingly high, and executives continue to flock to the latest innovation trend (2019 seems to be the year of Corporate Venture Capital).

Why?

That’s the question that Joshua Gans, Professor of Strategic Management and holder of the Jeffrey S. Skoll Chair of Technical Innovation and Entrepreneurship at the University of Toronto’s Rotman School of Management, tries to answer in his book The Disruption Dilemma.

He starts by grounding the reader in the core definitions and theories related to disruption, then makes the case that rather than trying to predict disruption (a difficult if not impossible task) organization should instead follow one of four strategies, before wrapping up with a re-examination of the data and research Christensen used to create his original theory of disruption.

“Disruption” is more than a new technology…it is an identity crisis

in their 1995 Harvard Business Review article, “Disruptive Technologies: Catching the Wave,” Clayton Christensen and Joseph L. Bower coined the term “disruptive technology” and defined it as having

“two important characteristics: First they present a different package of performance attributes — one that, at least at the outset are not valued by existing customers. Second, the performance attributes that existing customers do value improve at such a rapid rate that the new technology can later invade those established markets.”

For Christensen. disruption occurs when management chooses not respond to a new innovation because it does not perform as well as existing solutions along traditional performance dimensions and therefore is unappealing to existing customer.

Interestingly, at the same time that Christensen was studying for his PhD at Harvard, another doctoral student was also conducting research into why successful firms fail in light of new technologies. In 1990, Rebecca Henderson, now one of only two University Professors at Harvard (the other one is Michael Porter), debuted the term “Architectural Innovation” with her collaborator, Kim Clark, in their paper “Architectural Innovation: The Reconfiguration of Existing Product Technologies and The Failure of Established Firms.”

For Henderson, disruption, happens when managers are unable to respond because the innovation requires changes to how the firm operates, communicates, coordinates, learns, and makes decisions. Thus,

“Architectural innovation presents established firms with a more subtle challenge. Much of what the firm knows is useful and needs to be applied in the new product but some of what it knows is not only not useful but may actually handicap the firm. Recognizing what is useful and what is not, and acquiring and applying new knowledge when necessary, may be quite difficult for an established firm….”

Gans terms the Christensen theory demand-side disruption and the Henderson theory supply-side disruption. He unites both of these two types of disruption under a single definition of disruption as

“what a firm faces when the choices that once drive a firm’s success now become those that destroy its future.”

What I like about this definition is that it takes disruption beyond the narrow fields of technology, products, or services and considers it in the broader context of markets and industries. It reveals disruption to be something that all organizations are likely to face at some point in their future and one that will call into question many of the fundamental beliefs upon which the organization operates. Further, identifying and understanding both demand- and supply-side disruption can help organizations understand the challenge they face and where and how to focus their resources to navigate the rough road ahead.

Predicting disruption is hard.

What both demand-side Disruption (Christensen) and supply-side Disruption (Henderson) theories have in common is that they are kicked off by the introduction of a new innovation into the market.

However, new innovations launch all the time and very few of them start the domino effect that characterizes disruption. This is because an innovation must do two things in order to be disruptive: (1) offer poorer performance on some dimensions that existing customers value and offer new performance benefits that appeal to new customers and (2) improve rapidly enough that the innovation is able to quickly perform at levels desired by existing customers while offering the new benefits that new customers have grown to love.

As Gans point out, it’s relatively easy to determine if an innovation will meet the first criteria but it takes time to know whether or not the second criteria will be met. “Therefore, both supply- and demand-side theories lead to the conclusion that predicting disruptive events is very challenging, if not impossible.”

Responding is even harder.

To illustrate this point, Gans shares the stories of Polaroid and Kodak, two companies that recognized and responded to a potentially disruptive innovation decades before it transformed the market, but still failed.

In 1981, Polaroid recognized the threat posed by digital technologies. By 1989, it was investing over 40% of its R&D budget into digital imaging. However, while it was investing in technology, it was struggling to envision the right products to commercialize its technological advancement. This struggle was rooted not in its ability to innovate cameras but rather by “razor/blade” business model (and supporting mindset) that resulted in Polaroid subsidizing cameras and making money on film, a model (architecture) that would need to change if the company shifted from film to digital technology.

The company resisted re-organizing itself around the new architecture such that when it eventually developed and launched a digital camera it into the market, there were already 40 established competitors and Polaroid struggled to differentiate itself. Five years later, in 2001, Polaroid declared bankruptcy.

Digital imaging technology had been on Kodak’s radar screen since the mid-1970s. In the 1990s, it partnered with companies like Apple to develop digital cameras and, by 2005, was the market leader in docks that enabled sharing of digital images between computers and cameras.

So prescient were Kodak’s senior executives that “it was even one of the first few companies to consult with Clayton Christensen himself. Managers at Kodak read the Innovator’s Dilemma upon its publication and used it messages to direct Kodak’s product strategy. One example of this was to launch cameras in toy stores as a defense against Nintendo, which had put them in one million Game Boys. Nintendo’s cameras were by all accounts awful, but they were enough to get Kodak worried about disruption. Kodak was able to outpredict the market and to make substantial investments in what came to be disruptive innovations. Though they were initially inferior on multiple dimensions, the improved to take the market in less than a decade.”

If Kodak did everything right, at least according to Christensen’s theory, why did it declare bankruptcy in 2012?

It failed because it did not predict that the dominant design for digital photos would shift from cameras to phones and continued to innovate and invest in “hybrid products that would combine its existing strengths with the new technologies, for example the Photo CD, a way of taking film to photo shops and bringing a digital product home.”

The moral or these stories is that if you are able to identify a potentially disruptive innovation and if you take action to respond, it is nearly impossible to predict the path the innovation will take and attempting to do so is likely to require considerable resources but result in adding only a few years to the organization’s life.

4 strategies for responding to disruption

If you buy-in to Gans’ argument that predicting and trying to stave off disruption is a fool’s errand, it can be tempting to throw up your hands, declare defeat, and simply wait for disruption to claim your organization as its next victim. And, to be fair, Gans does offer this, Wait and Give up, as one of four possible strategies to deal with disruption.

But let’s say you’re not one to declare defeat easily or quickly, what then?

According to Gans, you first need to acknowledge that the two greatest barriers to innovation are uncertainty and cost. Uncertainty is a barrier because, as described above, you can’t be certain of an innovation’s disruptive path until it is well on the journey and this uncertainty is likely to make managers hesitant to take action. However, even if managers are willing to stomach uncertainty, “established firms face a dilemma in introducing new products or innovations because this cannibalizes their existing, profitable businesses….” This reality, “that there are no free lunches, only trade-offs,” has been part of economic theory since Nobel Prize winner Kenneth Arrow named it “the replacement effect” in a 1962 paper.

For organizations unwilling to surrender to disruption, Gans offers three potential strategies to manage uncertainty and cost and position themselves for success:

1. Double Down by leveraging existing strengths to contain a new entrant. This strategy works best when the innovation to which the organization is responding turns out to NOT be disruptive. In cases where it is disruptive, organizations are likely to face the same challenges and fate as Kodak and Polaroid

2. Wait and Double Up by investing heavily only once it is certain that an innovation is disruptive. This approach works because, as economists Richard Gilbert and David Newbury wrote in 1981, “when an established firm can defend a monopoly segment against innovative entry through investment, its incentive to protect its monopoly will be greater than the incentive for new entrants to invade.”

3. Wait and Buy Up a the most promising new entrant. Even though established firms are likely to pay a premium to acquire the new entrant, it offers them certainty of watching the market shake out and saving them the cost of the Double down or Double up strategies. However, this strategy works the best when only market-side (Christensen) disruption is occurring as “the problem faced by established firms is not the acquisition of such knowledge but instead the integration of different ways of doing things into an organization that already has ingrained processes.”

Putting it all into practice

As much fun as it is to nerd-out on innovation theory, let’s get down to brass tacks and outline what all of this means to Intrapreneurs (people trying to innovate within existing organizations).

For me, this boils down to three questions organizations need to ask themselves:

1. Should we act in response to a potential disruption?

2. How should we organize to respond?

3. What should we do to respond?

The questions and their corresponding answers form a basic decision tree:

The answers to question 1 were outlined above — large organizations should WAIT until they are certain that disruption is occurring and have confidence in the path it could take

The answers to question 2 reveal another point of difference between Christensen’s and Henderson’s theories:

Christiansen advocates for independent autonomous units, using Lockheed’s famous Skunk Works as an example. He asserts that, in order to be successful, independent units “cannot be forced to compete with projects in the mainstream organization for resources. Because values are the criteria by which prioritization decisions are made, projects that are inconsistent with a company’s mainstream values will naturally be accorded lowest priority. Whether the independent organization is physically separate is less important than is its independence from the normal resource allocation process.” (The Innovator’s Dilemma)

Henderson recommends integration — a culture and practice in which organizations examine and question the implicit linkages in how they operate, evolve them to meet business needs, and readily assimilate linkages that emerge or are acquired. This approach enables firms to respond to both demand- and supply-side disruption. However, “to proactively use integration to prevent disruption often involves sacrificing short-term competitiveness and even market leadership” and, as a result, Gans argued is best used by companies operating in industries where disruption is frequent.

How an organization answers question 3 is based on numerous factors, including available capital, competitive activity, and market/ shareholder pressure. In my experience, however, the choice usually boils down to how the organization has historically grown. Companies that have grown primarily through acquisition should prioritize a Buy up strategy while those that typically grow organically should eschew acquisition for and either Double up or Double Down.

The bottom line

The book wraps up with a nerd-tastic deep dive into Christensen’s research of the micro-processor industry, the data set he used to develop his theory of disruption, and the logic and analysis flaws in his conclusions. It’s worth reading but, as Gans admits, it shouldn’t significantly alter how we think about disruption

Ultimately, by weaving together multiple theories of disruption with tried and true economic theories, The Disruption Dilemma expands how we think and talk about the dynamics that influence if and how organizations respond to disruption and ultimately how we can be more successful when confronting it.

If you want to read The Disruption Dilemma you can buy it at MIT Press, Amazon, Powell’s, or (hopefully) your local independent book seller.

Your Brain At Work by David Rock

Your Brain At Work by David Rock

by | Jun 9, 2019 | Book Club

“You have power over your mind — not outside events. Realize this, and you will find strength.” Marcus Aurelius

That, in a nutshell, is what Your Brain At Work is all about . By blending snapshot stories, scientific and medical research, and practical examples, David Rock lays out a convincing and easy to read argument that, by understanding the workings and limitations of our brains, we can better understand others, overcome challenges, and navigate our world.

While this book is certainly written for a mass audience, innovators especially should give it a read because of what it has to say about insights, ideas, and driving change.

INSIGHTS

We’ve all had those A-Ha! moments. Those brief seconds when we’re doing nothing of import (like taking a shower) and suddenly, without warning, an insight pops into our heads.

Often those insights are an answer to a question or a solution to a problem that has been plaguing us. We’ve encountered a new challenge and we know that the usual solutions, procedures, and answers won’t work, but we don’t know what will.

What we need is an insight — “not a logical solution,” Rock explains, “but one that recombines knowledge (and maps in your brain) in a whole new way.”

The reason why insights pop into our heads when we’re doing nothing is that our brain is, in fact, doing quite a lot. Studies conducted by Dr. Stellan Ohlsson, at the University of Illinois at Chicago, explain why this is, “when facing a new problem, people apply strategies that worked in prior experience. This works well if the new problem is similar to the old problem. However, in many situations, this is not the case, and the solution from the past gets in the way, stopping better solutions from arising… Instead, the projection of prior experience has to be actively suppressed and inhibited.”

By not thinking of anything in particular, we’re actually suppressing the usual answers and creating space for new answers (insights) to emerge. And luckily, we don’t have to spend our days in the shower to make this happen.

How to Create Insights:

  1. Focus on the big picture: Dr. Mark Beeman, an associate professor at Northwestern University and an expert in the neuroscience of insights, found that when people solve a problem using insights, their right anterior lobe (a region in the brain’s right hemisphere) becomes more active than usual. Because the right hemisphere is primarily responsible for identifying holistic connections, keeping it active is key to producing insights. However, when we focus on the details of a problem, instead of the big picture, we activate the left hemisphere this decreasing activity in the right hemisphere and reducing the conditions required for insight.
  2. Get a fresh perspective: As Dr. Ohlsson’s research shows, the more we know about a problem or a situation, the more likely we are to rely on past experience for a solution. It can be incredibly hard to get out of our own way so, instead, we should seek out people with different experiences and perspectives for their input. Even if they don’t have the perfect answer, simply listening to a different perspective can help create the space needed for insights to emerge
  3. Have fun. Beeman’s research has also revealed a strong correlation between emotional states and insight. As Rock explains, “Increasing happiness increases the likelihood of insight, while increasing anxiety decreases the likelihood of insight. This relates to your ability to perceive subtle signals. When you are anxious, there is greater baseline activation and more overall electrical activity, which makes it harder for you to perceive subtle signals.” Quite simply, if you’re happy, you’re able to pick up subtle pieces of information that can be used to create brilliant insights.

IDEAS

Throughout the book, Rock uses a small theater as a metaphor to explain how the brain works.

Imagine that your pre-frontal cortex, the part of the cortex (the curly gray outer covering of your brain) that sits just behind your forehead and that Is responsible for most of our decision-making and problem-solving activity, is a stage. The stage is small, it can hold only a handful of people at a time, and it needs A LOT of lighting (energy) to operate (think).

In the theater are actors, pieces of information from the outside world, and the audience, information from our internal worlds (thoughts, memories, etc.).

YOU are the director and you can move actors (external info) and audience members (internal info) on or off the stage at any given time to accomplish the following:

  • Understand a new idea — put an actor (external info) on the stage and see how it interacts with the audience (info already in your head)
  • Make a decision — put several actors on stage and compare them to each other
  • Recall information — bring an audience member on stage
  • Memorize — move actors off-stage and put them in the audience
  • Inhibit thoughts — move actors off stage

Understanding how your brain works, and that you can control it, provides insights into how to get the most out of it on a daily basis AND how to get the most out of others’ brains when you need to — like during an ideation session

How to Generate Better Ideas

  1. Start in the morning: The pre-frontal cortex is energy-hungry so the more your work it, the more physically and mentally drained you become. Doing creative work early in the day means that you’re starting with all your available energy
  2. Tell stories about people: When explaining a problem to people, it’s tempting to lay out all the facts. But “studies have shown that when you give people a logic problem to solve, they do so dramatically faster than when the problem is explained in terms of people interacting rather than in terms of disembodied conceptual ideas.” This is why personas, photos, and videos are so powerful during ideation, the move our thinking away from the conceptual (e.g. “how can we increase revenue?”) to the personal (e.g. “how can we better serve Claire the Customer?”)
  3. Provide diverse, analogous, and unexpected example solutions to spur ideation: “Picturing something you have not yet seen is going to take a lot more energy and effort,” Rock writes. “This partly explains why people spend more time thinking about problems (things they have seen) than solutions (things they have never seen and taking breaks gives you the opportunity to recharge so that you can continue the creative work.” Give people examples of solutions so that they can shift their thinking away from problems AND suppress their instinct to focus on existing solutions to the new problem they’re facing

CHANGE

We’ve all heard the clichés — “Get comfortable being uncomfortable” and “The only thing that is certain is uncertainty” and “The only thing that is constant is change.” But none of them make us feel better when everything around us is changing and, especially when we are being asked to change.

The reason for that is, according to neuroscientists, “because uncertainty feels, to the brain, like a threat to your life.”

It’s easy for innovators, people who feel it is their mission to drive change, to forget this when we propose new ideas or procedures. We are confident that we’ve done the work required to make a thoughtful and correct proposal that improves a product, process, or situation and are dumbfounded when we meet with resistance.

While we’ve worked hard on our idea, we’ve forgotten to work hard to understand how our audience’s brains will react. Specifically, whether the people we are presenting to may experience threats in one or more of the following domains:

  1. Status: Will I be perceived as less than other people?
  2. Certainty: Am I being asked to do things differently?
  3. Autonomy: Will I lose control or decision-making authority?
  4. Relatedness: Will I lose my connection to others?
  5. Fairness: Were my expectations not met?

Anticipating possible reactions in any and all of these domains, and addressing them directly or indirectly is critical to creating and sustaining change

How to Create Change

  1. Proactively address and reduce threats: Act humbly and acknowledge someone’s position and role to reduce threats to status, Set clear expectations and talk openly about the future to increase certainty. Let others own key activities and make timely and clear decisions to promote autonomy. Be authentic and real in all of your communications to reinforce relatedness. Keep your promises and quickly address broken ones in order to promote a perception (and reality) of fairness.
  2. Set goals and provide rewards: Setting goals as they relate to any of the five items above (stats, certainty, autonomy, relatedness, and fairness) and prime people’s brains to look for evidence that they are progressing towards those goals. Adding in a reward for achieving the goals further improves the likelihood that change will occur because it keeps “the expectation of a primary reward in sight…(which) will lift their moods and improve their thinking.”
  3. Repeat. Repeat. Repeat: “Real change requires repetition,” explains Rock. You’re asking people to stop doing something they’ve been doing for a long time and to start doing something different. That isn’t going to happen overnight and it’s certainly not going to happen based on even the most compelling data-based argument (how many of us eat as many vegetables, exercise as often, or floss as frequently as we should?). Instead, change happens because we are reminded of it, it is reinforced, and we are rewarded over and over and over again.

In conclusion

These lessons and actions only skim the surface of the interesting and useful insights in Your Brain at Work. But to learn more, you’ll just have to buy it.

Do More Nothing

Do More Nothing

by | Jun 9, 2019 | Innovation

“What do you plan to do on vacation?” my friend asked.

“Nothing…”

Long silence

“…And it will be amazing.”

We live in a world that confuses activity with achievement so I should not have been surprised that the idea of deliberately doing nothing stunned my friend into silence.

After all, when people say, “I wish I had nothing to do” they usually mean “I wish I could choose what I do with my time.” And, when they do have the opportunity to choose, very few choose to do nothing.

Why does the idea of doing nothing make us so uncomfortable?

To put it bluntly, busy-ness is a status symbol.

In their paper, “Conspicuous Consumption of Time: When Busyness and Lack of Leisure Time Become a Status Symbol,” professors Silvia Bellezza (Columbia Business School), Neeru Paharia (Georgetown University), and Anat Keinan (Harvard University), wrote that people’s desire to be perceived as time-starved is

“driven by the perceptions that a busy person possesses desired human capital characteristics (competence, ambition) and is scarce and in demand on the job market.”

We didn’t always believe this.

For most of human history, we’ve had a pretty balanced view of the need for both work and leisure. Aristotle argued that virtue was obtainable through contemplation, not through endless activity. Most major religions call for a day of rest and reflection. Even 19th-century moral debates, as recorded by historian EO Thompson, recognized the value of hard work AND the importance of rest.

So what happened?

While it’s easy to say that we have to work more because of the demands of our jobs, the data says otherwise. In fact, according to a working paper by Jonathan Gershuny, a time-expert based on the UK, actual time spent at work has not increased since the 1960s.

The actual reason may be that we want to work more. According to economist Robert Frank, those who identify as workaholics believe that:

“building wealth…is a creative process, and the closest thing they have to fun.”

We choose to spend time working because Work — “the job itself, the psychic benefits of accumulating money, the pursuit of status, and the ability to afford the many expensive enrichments of an upper-class lifestyle” according to an article in The Atlantic — is what we find most fulfilling.

It’s not that I like working, I just don’t like wasting time.

We tend to equate doing nothing with laziness, apathy, a poor work ethic, and a host of other personality flaws and social ills. But what if that’s not true.

What if, in the process of doing nothing, we are as productive as when we do something?

Science is increasingly showing this to be the case.

Multiple fMRI studies have revealed the existence of the default mode network (DMN), a large-scale brain network that is most active when we’re day-dreaming. Researchers at the University of Southern California argue that

“downtime is, in fact, essential to mental processes that affirm our identities, develop our understanding of human behavior and instill an internal code of ethics — processes that depend on the DMN.”

The results of harnessing the power of your DMN are immense:

More creativity. The research discussed in Scientific American suggests that DMN is more active in creative people. For example, according to Psychology Today:

  • The most recorded song of all time, “Yesterday” by The Beatles, was ‘heard’ by Paul McCartney as he was waking up one morning. The melody was fully formed in his mind, and he went straight to the piano in his bedroom to find the chords to go with it, and later found words to fit the melody.
  • Mozart described how his musical ideas ‘flow best and most abundantly.’ when he was alone ‘traveling in a carriage or walking after a good meal, or during the night when I cannot sleep… Whence and how they come, I know not, nor can I force them.’
  • Tchaikovsky described how the idea for a composition usually came ‘suddenly and unexpectedly… It takes root with extraordinary force and rapidity, shoots up through the earth, puts forth branches and leaves, and finally blossoms.’

More productivity. According to an essay in The New York Times, “Idleness is not just a vacation, an indulgence or a vice; it is as indispensable to the brain as vitamin D is to the body, and deprived of it we suffer a mental affliction as disfiguring as rickets. The space and quiet that idleness provides is a necessary condition for standing back from life and seeing it whole, for making unexpected connections and waiting for the wild summer lightning strikes of inspiration — it is, paradoxically, necessary to getting any work done.”

Less burnout. Regardless of how many hours you work, consider this: researchers have found that it takes 25 minutes to recover from a phone call or an e-mail. On average, we are interrupted every 11 minutes which means that we can never catch up, we’re always behind.

That feeling of always being behind leads to burn-out which the World Health Organization officially recognized as a medical condition defined as a “syndrome conceptualized as resulting from chronic workplace stress that has not been successfully managed” and manifests with the following symptoms:

  • Feelings of energy depletion or exhaustion
  • Increased mental distance from one’s job, or feelings of negativism or cynicism related to one’s job
  • Reduced professional efficacy

Doing nothing, quieting our minds and not focusing on any particular task, can actually help reset our bodies systems, quieting the release of stress chemicals, slowing our heart rates, and improving our mental and physical energy

Better health. Multiple studies indicate that idleness “produces many health benefits including, but not limited to, reduced heart rate, better digestion, improvements in mood, and a boost in overall emotional well-being — which, of course, affects everything on a biochemical and physiological level, thereby serving as a major deciding factor on whether or not we fall ill, and/or remain ill. Mental downtime also replenishes glucose and oxygen levels in the brain, and allows our brains to process and file things, which leaves us feeling more rested and clear-headed, promotes a stronger sense of self-confidence, and…more willing to we trust change.”

Fine, you convinced me. How can I do nothing?

There are the usual suspects — vacations, meditation, and physical exercise — but, if you’re anything like me, the thought of even finding 5 minutes to listen to a meditation app is so overwhelming that I never even start.

An easier place to start, in my experience, is in intentionally working nothing into the moments that are already “free.” Here are three of my favorite ways to work a bit of nothing into my day.

Make the Snooze button work for you. When my alarm goes off, I instinctively hit the Snooze button because, I claim, it is my first and possibly only victory of the day. It’s also a great way to get 9 minutes of thoughtful quiet nothingness in which I can take a few deep breaths, scan my body for any aches and pains, and make sure that I’m calm and my mind is quiet when I get out of bed.

Stare out the window. I always place my computer next to a window so that I can stare out the window for a few minutes throughout the day and people think I’m thinking deep thoughts. Which I am. Subconsciously. Lest anyone accuse me of being lazy or unproductive while I watch the clouds roll by, I simply point them to research that shows “that individuals who took five to ten minute breaks from work to do nothing a few times a day displayed an approximately 50% increase in their ability to think clearly and creatively, thus rendering their work far more productive.

Bring the beach to you. Research from a variety of places, from the UK Census to The Journal of Coastal Zone Management, indicate that our brains and bodies benefit from time at the beach. But, if you can’t go to the beach, there are lots of ways to bring the beach to you. Perhaps the simplest is to bring more blue into your environment. Most people associate blue with feelings of calm and peace and a study published in the American Association for the Advancement of Science found that the color blue can boost creativity. Even putting a picture of a beach (or your own personal happy place) on your desk or computer screen can trigger your brain to slow down, relax, and possibly trigger your DMN.

With so many benefits, isn’t it time you started doing more nothing?